Get up the courage
An annual review can be a daunting process – not least when it comes to discussing money. But it is, of course, very important. And there are some not-so-obvious reasons why.
One example is known among economists as “money illusion” – a supernatural-sounding name for a very real problem. It is our tendency to think of the face value of money rather than what it is actually worth. It can arise in pay negotiations when we don’t think though the real life implications of what’s on the table.
Likewise inflation - the general rise in prices - can be a trap. Ideally your pay will at least keep pace with rising prices, otherwise it can be that you’re effectively worse off. For example, if you accept a pay rise of say 2% when inflation is 4%, the outcome is comparable to a 2% pay cut.
In the eZonomics blog post How not to negotiate a pay rise, economist Chris Dillow cites research that show unconventional traits can actually pay off. Research from Germany found, for example, that it doesn’t pay to be nice – a quarter of people who score highest for agreeableness earn less than the average. Dillow also highlights findings that claim taller and better looking individuals earn more, and, if you’re a man, being married helps.
If you’re a woman, research suggests it’s time to ask for more. Academics Andreas Leibbrandt and John List write that wage differences between men and women may be partly explained by a greater willingness of men to negotiate a salary under certain circumstances. The verdict: women should not be afraid to speak up so that they don’t miss out on their important pay rises.
Keep working, stay happy
However, for those who don’t get a pay rise, don’t fret. The news is not all bad. Economic research suggests keeping your job – actually being employed – is key to emotional as well as economic wellbeing. Research on the policy portal Vox finds unemployment reduces happiness by much more than just the loss of a wage.